1. Field of the Invention
The present invention relates to computer-readable storage devices for storing computer programs for operating computers. More particularly, the invention relates to a computer program for evaluating or comparing two or more investment portfolios each including several securities to determine the extent of diversity or lack of diversity between the investment portfolios.
2. Description of the Prior Art
Shares of over 3,600 separate equity-invested mutual funds are available to be purchased by the investing public. There are also thousands of available money market funds, debt-invested mutual funds, mortgage funds and other publicly held investment portfolios. In general, each mutual fund holds an ever changing portfolio of investments in securities issued by many different companies. An individual investor generally chooses to buy shares of a mutual fund to obtain the advantages of professional management of the mutual fund's investments and to gain diversification by owning a portion of all the various securities held by the mutual fund.
Diversification is a primary investment goal because: (1) it substantially reduces the investor's risks associated with reductions in the values of individual companies' securities and of the values of companies which do business primarily in a specific sector of the economy; and (2) it increases the possibility that the investor will participate in the ownership of companies whose securities increase in value. Because a mutual fund holds securities issued by many companies which do business primarily in different sectors of the economy, the investor achieves the advantages of investment diversification by buying shares of the mutual fund.
Many individual investors attempt to further diversify their investments by buying shares in two or more mutual funds. However, this often does not increase diversification as much as expected because many mutual funds hold investments in the same securities. For example, many mutual funds hold shares of General Motors stock. An individual investor does not increase the diversification of his or her investments by buying shares in two mutual funds to the extent that both mutual funds hold investments in the same securities. For example, there is no diversity to the extent that both mutual funds hold shares of General Motors stock.
Similarly, many mutual funds hold securities issued by various companies which do business primarily in the same sector of the economy. For example, General Motors and Ford both do business primarily in the "cyclicals" sector of the economy. An individual investor does not increase the diversification of his or her investments among economic sectors by buying shares in two mutual funds to the extent that both mutual funds hold investments in companies which do business primarily in the same sector of the economy. For example, there is no economic sector diversity to the extent the first mutual fund holds General Motors stock and the second mutual fund holds Ford stock.
Every mutual fund is required by law to regularly report, among other things, the identity, character and amount of the specific securities held in its portfolio as of an indicated date. These reports are public and are available to individual investors. A private business called "Morningstar" compiles from these public reports, publishes and sells to the public a monthly computer-readable report (called the "Morningstar Ondisc" report), which sets out the details of the most recently reported portfolios of over 6,000 mutual funds. The Morningstar Ondisc report includes for each mutual fund: (1) the percent which the market value of each security held by the mutual fund bears to the portfolio's total market value (the "Security Percent" for each security); and (2) the sector of the economy in which each company whose securities are held by the mutual fund primarily does business.
However, neither the Morningstar Ondisc report nor any other source provides any comparison of the attributes which any mutual fund's investments have in common with any other mutual fund's investments. These common "attributes" include the extent that both mutual funds hold investments in the same securities or the extent that both mutual funds hold investment securities issued by companies which do business primarily in a particular sector of the economy. Furthermore, the enormity of individual calculations involved in analyzing the common features of even a few mutual fund portfolios makes any attempt at manual calculation impossible.
Accordingly, there are no known methods or computer programs that allow an individual investor to determine the extent of diversity of investment obtained by purchasing shares of two or more designated mutual funds. Also, an individual is not now able to search information about various mutual funds' investment attributes in order to locate one or more mutual funds which meet the investor's specific criteria for diversification of investments, as compared to a mutual fund already owned by the investor.